Can You Borrow Against Your Structured Settlement?

If you’ve hit a major financial snag, it’s important to consider your options and make good, sound decisions – it’s how you put yourself back in good standing with the powers that be! And if you have a structured settlement, you might consider how to leverage your ongoing payment stream. You might be wondering if you can get a loan by borrowing against your structured settlement. After all, it is guaranteed money, so you should be able to use it as collateral for a loan, right? Well, not really. Opting to cash in your structured settlement payments for a lump sum is by far a better choice than payday or other types of loans. Borrowing against your structured settlement could result in further financial issues.

Why You Can’t Borrow Against Your Structured Settlement

Typically, an individual can pledge real or personal property as collateral for a loan from a bank. That’s because real estate, land, jewelry, and other types of personal property can be seized and then sold by the bank if you default on the loan. While structured settlements are assets and are certainly valuable, there’s no legal way for banks to sell your structured settlement payments. Why? Because it’s your money, awarded to you by the courts.

In fact, according to the National Structured Settlement Trade Association (NSSTA), “Normally, you may not use your structured settlement payments as collateral for a loan. The reason is that the federal law is designed to provide these benefits to you on an income tax-free basis and prohibits you from assigning or encumbering them.”
In other words, most banks won’t grant you a loan using your structured settlement payments as collateral – it’s a liability for them. Personal loans, home equity loans, car loans, etc. are all fair game. But all of these will put you into further debt.

Loans vs. Selling Your Structured Settlement Payments

You can sell your settlement payments to get cash in a large lump sum instead of deciding to borrow loan money that you have to pay back later. And while the process of selling your structured settlement may take some time (at least a month), a judge is involved to make sure the process works in your best interest. The judge will also take the well-being of any dependents into account. Truth-be-told, the last thing anyone wants is to be indebted to a loan company which charges an outrageous interest rate. Your financial snag could turn into a full-on unraveling of your money situation.

While companies that buy future structured settlement payments charge a “discount rate” (the functional equivalent of an interest rate), getting a lump sum for all or some of your future structured settlement payments is the better option. The judge and a reputable funding company will have your best interest in mind. Plus, selling your structured settlement satisfies your immediate financial needs and provides a certain level of protection from loan sharks.

With some research, you’re sure to find a reputable company that will work with you in assessing your needs, help you in deciding what steps you should take; and, understand the terms of any agreement you sign (RSL Funding is a trusted company with an A+ rating with the Better Business Bureau). Remember, a judge makes the final decision as to whether or not selling your future structured settlement payments for a lump sum makes the most sense for your situation. Considering that you can’t borrow against your structured settlement, selling your future payments for a lump sum can protect you in the long run. It means an influx of money that you would have had to wait months or even years for otherwise.

And the good news is, you can sell a portion of your payments if you’re experiencing financial hardship but are worried about losing the long-term stability of your payment stream. Handling financial obligations this way will provide the cash you need while also ensuring that you have future payments in place. So, put the idea of taking out a loan to bed. You’re on to bigger, better, and more financially-sound decisions.

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